NOTE 10 – LONG-TERM CONVERTIBLE DEBT

On February 23, 2011, we entered into a Convertible Promissory Note Agreement with an unaffiliated third party, JMJ Financial (the "Lender" or "JMJ"), relating to a private placement of a total of up to $1,800,000 in principal amount of a Convertible Promissory Note (the "Note") providing for advances of a gross amount of $1,600,000 in seven tranches. Pursuant to the terms of a Registration Rights Agreement (the "Rights Agreement") dated February 23, 2011, between the Company and JMJ, we are required to file within 10 days from the effective date of an increase of authorized shares approved by our shareholders, an S-1 Registration Statement (the "Registration Statement") covering 130,000,000 shares of Company common stock to be reserved for conversion of the Note. Although our shareholders on July 12, 2011, voted to increase our authorized shares to 2,000,000,000, we have not filed the registration statement as required by the Rights Agreement.

The Note provides for funding in seven tranches as stipulated in the Funding Schedule attached. The first tranche of $300,000 was closed on February 24, 2011, and we received $258,000 after deductions of $30,000 for a 10% Finder's Fee and $12,000 for an Origination Fee. The second tranche of $100,000 closed on May 20, 2011, and we received $93,000 after deduction of $7,000 for a 7% Finder's Fee. A partial closing on the third tranche of $35,000 closed on October 7, 2011 and we received $32,250 after deduction of $2,750 for a 7% Finder's Fee. A partial closing on the third tranche of $25,000 closed on February 8, 2012 and we received $25,000. In connection with this partial third tranche we will pay a 7% Finder's Fee, which is $1,750. A partial closing on the third tranche of $25,000 closed on February 29, 2012 and we received $25,000. In connection with this partial third tranche we will pay a 7% Finder's Fee, which is $1,750. A final closing on the third tranche of $15,000 closed on April 4, 2012 and we received $15,000. In connection with this final third tranche we will pay a 7% Finder's Fee, which is $1,050. We received $10,000 from a partial closing on the fourth tranche with JMJ on October 3, 2012. In connection with this partial fourth tranche we will pay a 7% Finder's Fee, which is $700. The remaining four tranches are to be funded based on achievement of milestones relating to the Registration Statement, with the final tranche of $300,000 being available 150 days after effectiveness of the Registration Statement, which must be effective 120 days after the date of the Agreement. For the remaining four tranches, we are obligated to pay a Finder's Fee equal to 7% in cash at each closing date. We may cancel the unfunded portion of the Agreement at a fee of 20% of the unfunded amount. As of December 31, 2012, $1,290,000 in principal amount remains unfunded and if we choose to cancel we will have to pay JMJ $258,000 to terminate the agreement.

The Note, after the seven tranches are drawn, would generate net proceeds of $1,467,000 after payment of the Origination Fee and a 7% Finder's Fee. JMJ has the option to provide an additional $1,600,000 of funding on substantially the same terms as the first Agreement; however, we have the right to cancel, without penalty, the Note Agreement within five days of JMJ's execution. Once executed and accepted by both parties and five days has passed, cancellation of unfunded payments is permitted at a fee of 20% of the unfunded amount. Cancellation of funded portions is not permitted.

The funding schedule of the seven tranches is as follows:

§	$300,000 paid to Borrower within 2 business days of execution and closing of the agreement.

§	$100,000 paid to Borrower within 5 business days of filing of Definitive Proxy to increase authorized shares to 2,000,000,000 or more.

§	$100,000 paid to Borrower within 5 business days of effective increase in authorized shares to 2,000,000,000 or more.

§	$100,000 paid to Borrower within 5 business days of filing of registration statement, and that registration statement must be filed no later than 10 days from the effective increase of authorized shares.

§	$400,000 paid to Borrower within 5 business days of notice of effective registration statement, and that registration statement must be effective no later than 120 days from the execution of the agreement.

§	$300,000 paid to Borrower within 90 business days of notice of effective registration statement, and that registration statement must be effective no later than 120 days from the execution of the agreement.

§	$300,000 paid to Borrower within 150 business days of notice of effective registration statement, and that registration statement must be effective no later than 120 days from the execution of the agreement.

The conditions to funding each payment are as follows:

§	At the time of each payment interval, the Conversion Price calculation on Borrower's common stock must yield a Conversion Price equal to or greater than $0.015 per share (based on the Conversion Price calculation, regardless of whether a conversion is actually completed or not).

At the time of each payment interval, the total dollar trading volume of Borrower's common stock for the previous 23 trading days must be equal to or greater than $1,000,000. The total dollar volume will be calculated by removing the three highest dollar volume days and summing the dollar volume for the remaining 20 trading days.

§	At the time of each payment interval, there shall not exist an event of default as described within any of the agreements between Borrower and Holder.

Prior to the maturity date of February 2, 2014, JMJ may convert both principal and interest into our common stock at 75% of the average of the three lowest closing prices in the 20 days previous to the conversion. We have the right to enforce a conversion floor of $0.015 per share; however, if we receive a conversion notice in which the Conversion Price is less than $0.015 per share, JMJ will incur a conversion loss [(Conversion Loss = $0.015 – Conversion Price) x number of shares being converted] which we must make whole by either of the following options: pay the conversion loss in cash or add the conversion loss to the balance of principal due. Prepayment of the Note is not permitted.

The Note has a 9% one-time interest charge on the principal sum. No interest or principal payments are required until the Maturity Date, but both principal and interest may be included in conversions prior to the maturity date.

Debt to Equity Conversions:

On August 24, 2011, JMJ executed a debt to equity conversion of $36,015 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 7,000 common shares pursuant to Rule 144 based on a conversion price of $5.15 per share.

On August 31, 2011, JMJ executed a debt to equity conversion of $41,160 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 8,000 common shares pursuant to Rule 144 based on a conversion price of $5.15 per share.

On September 15, 2011, JMJ executed a debt to equity conversion of $37,597 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 8,200 common shares pursuant to Rule 144 based on a conversion price of $4.59 per share.

On September 28, 2011, JMJ executed a debt to equity conversion of $40,950 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 10,000 common shares pursuant to Rule 144 based on a conversion price of $4.10 per share.

On October 12, 2011, JMJ executed a debt to equity conversion of $36,750 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 10,000 common shares pursuant to Rule 144 based on a conversion price of $3.68 per share.

On December 15, 2011, JMJ executed a debt to equity conversion of $63,840 in principal of the first tranche of $300,000 which we closed on February 24, 2011. We issued JMJ 40,000 common shares pursuant to Rule 144 based on a conversion price of $1.60 per share.

On January 24, 2012, JMJ executed a debt to equity conversion totaling $44,100 of which $43,688 was principal and $412 was consideration for the first tranche of $300,000, which we closed on February 24, 2011. We issued JMJ 60,000 common shares pursuant to Rule 144 based on a conversion price of $0.74 per share.

On February 9, 2012, JMJ executed a debt to equity conversion totaling $44,100 of which $37,088 was consideration and $7,012 was interest for the first tranche of $300,000, which we closed on February 24, 2011. We issued JMJ 70,000 common shares pursuant to Rule 144 based on a conversion price of $0.63 per share.

On February 29, 2012, JMJ executed a debt to equity conversion totaling $39,550 of which $19,988 was interest for the first tranche of $300,000, which we closed on February 24, 2011 and $19,562 was principal for the second tranche of $100,000, which we closed on May 20, 2011. We issued JMJ 100,000 common shares pursuant to Rule 144 based on a conversion price of $0.40 per share.

On April 24, 2012, JMJ executed a debt to equity conversion of $29,120 in principal of the second tranche of $100,000 which we closed on May 20, 2012. We issued JMJ 104,000 common shares pursuant to Rule 144 based on a conversion price of $0.28 per share.

On May 9, 2012, JMJ executed a debt to equity conversion of $28,980 in principal of the second tranche of $100,000 which we closed on May 20, 2012. We issued JMJ 138,000 common shares pursuant to Rule 144 based on a conversion price of $0.21 per share.

On May 14, 2012, JMJ executed a debt to equity conversion of $4,389 in principal of the second tranche of $100,000 which we closed on May 20, 2011. We issued JMJ 38,000 common shares pursuant to Rule 144 based on a conversion price of $0.12 per share.

On May 24, 2012, JMJ executed a debt to equity conversion of $22,260 in principal of the second tranche of $100,000 which we closed on May 20, 2011. We issued JMJ 212,000 common shares pursuant to Rule 144 based on a conversion price of $0.11 per share.

On May 31, 2012, JMJ executed a debt to equity conversion of $2,940 in principal of the second tranche of $100,000 which we closed on May 20, 2011. We issued JMJ 28,000 common shares pursuant to Rule based on a conversion price of $0.11 per share.

On June 6, 2012, JMJ executed a debt to equity conversion totaling $19,551 of which $14,249 was interest for the second tranche of $100,000, which we closed on May 20, 2011 and $5,302 was principal for the third tranche of $35,000, which we closed on October 7, 2011. We issued JMJ 210,000 common shares pursuant to Rule 144 based on a conversion price of $0.093 per share.

On September 7, 2012, JMJ executed a debt to equity conversion of $19,572 in principal of the third tranche of $35,000, which we closed on October 7, 2011. We issued JMJ 240,000 common shares pursuant to Rule 144 based on a conversion price of $0.082 per share.

On October 3, 2012, JMJ executed a debt to equity conversion totaling $42,000 of which $14,501 was principal and $3,150 was interest for the third tranche of $35,000, which we closed on October 7, 2011; and $24,349 was principal of the fourth tranche of $25,000, which we closed on February 8, 2012. We issued JMJ 600,000 common shares pursuant to Rule 144 based on a conversion price of $0.07 per share.

On October 24, 2012, JMJ executed a debt to equity conversion totaling $10,500 of which $3,776 was principal and $2,250 was interest for the fourth tranche of $25,000, which

we closed on February 8, 2012; and $4,474 was principal of the fifth tranche of $25,000, which we closed on February 29, 2012. We issued JMJ 300,000 common shares pursuant to Rule 144 based on a conversion price of $0.035 per share.

All debt conversions were consummated at the contractual terms agreed upon for each loan. Accordingly, there was no gain/loss on conversions.

As of the December 31, 2012, we owe JMJ a total of $56,151 in long-term debt of which $45,526 is principal, $6,125 is consideration on the principal and $4,500 is interest.